Small businesses across the nation are losing
contracts that were legally set aside for legitimate small businesses,
due to large corporations fraudulently misrepresenting themselves
as small businesses.
A brief look at the widespread fraud
Through a combination of misguided Small Business Administration
policies, fraud, abuse, loopholes and a lack of oversight by the
SBA large firms are able to obtain small business procurement awards,
and those awards are counted towards the 23 percent small business
- 98 percent of all firms have fewer than 100 employees, according
to the U.S. Census. Until 1985 the SBA defined a "non-manufacturer" small
business as one with fewer than 100 employees. In 1986, that
definition was changed to allow up to 500 employees.
- On June 30, 2007, an SBA rule change mandated that all firms
receiving federal small business contracts must re-certify th
eir small business status every 5-years. However, prior
to June 30 th companies were required to re-certify that status
every 20 years. Through this loophole, large firms were
able to acquire small companies with long-term -- 10 to 20 year
-- small business contracts and maintain those contracts through
that re-certification period.
- Despite the SBA's efforts to reduce the recertification period,
a 5-year recertification period still constitutes a significant
loophole for large firms. We estimate that through this "grandfathering" policy , from
2007 to 2012 more than $300 billion dollars will be diverted
from legitimate small businesses to some of the largest companies
in the United States and Europe. That constitutes more
than $60 billion a year.
- There has been a long history of fraud and misrepresentation.
The SBA's Office of Inspector General in 1995 reported
a "particular fraudulent practice" of companies continuing
to falsely claim eligibility for small business set-aside
contracts even after the SBA had prohibited them from doing
so. http://www.sba.gov/ig/sba509.doc Page
- A decade later, Report 5-16 from the SBA Inspector General
cited a multiple award contract given "based on a false
certification." The company cited had claimed to be a small
business and a manufacturer, but in fact was an affiliate
of the actual manufacturer, a large business. http://www.sba.gov/ig/05-16.pdf Page
The ABSL's progress fighting against fraud and abuse
1. 600 large businesses have been stopped -
our information prompted their removal from SBA's database of small
2. Victorious in reducing the SBA's Information
Technology Value-Added Reseller size standard from 500 to 150.
3. Provoked a GAO investigation resulting
in Federal Government confirmation that a majority of contracts
are going to some of the world's largest companies.
4. Prompted a Congressional Hearing within
the House and Senate Small Business Committees.
5. Gathered overwhelming support for the reduction
in the size standard from 500 to 100 when the SBA sought public
comment. In response to ASBL efforts; we were offered support from
the U.S. Chamber of Commerce, Small Business groups, and concerned
small businesses across the country.
The ASBL's ongoing goals
The ASBL is fighting to end the fraud, abuse, loopholes,
and a lack of oversight , which has led to the diversion
of federal small business contracts from legitimate small businesses
to some of the largest corporations in the United States and
Europe. These indiscretions are allowing large firms to
steal tax dollars set aside for small businesses with no consequences.
Our battlefronts are the Office of Management and Budget, SBA,
Congress and every federal agency awarding federal, state, and
local contracts . We are working hard to encourage the government
to adopt new laws and regulations that will preclude the federal
government from reporting awards to large businesses as small business
procurement awards and punish firms that misrepresent themselves
as small businesses. In the pursuit of our goals we intend
- Force the SBA and Justice Department to properly investigate
fraud and misrepresentation in small business contracting.
Misrepresenting a firm as a small business to illegally receive
federal contracts and subcontracts is a felony with penalties
of up to ten years in prison, a fine of up to $500,000, cancellation
of all contracts and debarment from selling to the government
in the future. Based on information provided by Lloyd Chapman of
the ASBL , The SBA was forced to remove 600 large businesses
from their small business database. None of those firms were
- Return the definition of small business back to 100
98 percent of all U.S. firms have less than 100 employees and 89 percent
have less than 20 employees. In 1985, the SBA increased the small business
size standard for non-manufacturers from 100 to 500. ASBL prompted the SBA
to propose reducing the small business size standard back to 100 and the
SBA received unprecedented and overwhelming public support for this change.
- Eliminate the SBA's 5-year re-certification policy.
this policy, large firms that have obtained small businesses
with long-term federal small business contracts will be able
to maintain those contracts through 2012. We intend
to fight for annual re-certification, which would remove large firms
from federal small business contracting today, not 5 years
- Enforce "Liquidated Damages" and all other existing
federal laws for non-compliance with small business goals for
The law requiring prime contractors
to pay "Liquidated Damages" for failure to make a good faith
effort to reach their small business subcontracting goals has
NEVER been enforced. As a result most prime contractors never
achieve the small business goals stated in their government